Volvo Cars Chairman Li Says China Should Lift Foreign Cap

Li Shufu, chairman of Geely Automobile Holdings Ltd., said China should deepen reforms instead of protecting the interests of a few companies. Photographer: Tomohiro Ohsumi/Bloomberg

March 4 (Bloomberg) -- Li Shufu, the Chinese billionaire
chairman of Volvo Cars, said China should allow foreign
carmakers to control their operations in the world’s largest
auto market to encourage competition and bring down prices.

“We should let the market decide and form real competition
between Chinese companies and foreign companies,” Li, 50, who
is also chairman of Volvo Cars’ parent, Zhejiang Geely Holding
Group Co., told reporters at a briefing in Beijing yesterday.
“The interests of the consumers and the competitiveness of the
country are being undermined with the current setup.”

Li’s comments add to the growing debate about the merits of
the rule requiring foreign carmakers to set up joint ventures
with predominantly state-owned companies to manufacture vehicles
in the country. Geely was the first private automaker in China
when it started 17 years ago and teamed up with Volvo Cars,
which is separate from truckmaker Volvo AB, to manufacture in
the country.

A Ministry of Commerce official sparked the debate last
year after saying that local automakers should prepare for the
day when the foreign stake limit is relaxed. The comments, made
during an industry forum discussion, prompted the country’s main
auto association to say that Chinese brands would be “killed in
the cradle” if foreign automakers are allowed to become more
independent from their domestic partners.

Increase Collaboration

The Ministry of Industry and Information Technology, one of
the auto industry’s regulators, also weighed in on the subject,
saying last month that China’s automakers are still too weak and
need to increase collaboration with foreign automakers.

Since China opened up its factory floors to foreigners
decades ago, companies from General Motors Co. to Volkswagen AG
have poured billions of dollars to build cars in the country, as
long as they set up joint ventures and kept their ownership
capped at 50 percent. They do this to avoid paying custom duties
and other taxes that add more than 25 percent to the cost of
importing vehicles.

China FAW Group Corp. and Shanghai’s SAIC Motor Corp. have
joint ventures with Volkswagen and GM, while Dongfeng Motor
Corp. and Guangzhou Automobile Group Co. are partnered with
Nissan Motor Co. and Toyota Motor Corp., respectively.

China’s local brands, whose combined sales fell 5.1 percent
in January, will see further declines in sales this year because
they’re less competitive than foreign brands in terms of quality
and service, Dong Yang, secretary general at the China
Association of Automobile Manufacturers, said at a Feb. 13
briefing.

Deepening Reforms

Geely’s Li said China should deepen reforms instead of
protecting the interests of a few companies.

These state-owned enterprises are also helping foreign
brands compete with other Chinese carmakers, which is against
the interests of the consumer and broader industry, Li said. The
SOEs should team up with private local players to compete with
foreign companies instead, he said, emphasizing repeatedly that
his proposals were not motivated by self-interest.

China is unlikely to change the rules governing foreign
ownership in the auto industry anytime soon, according to Vivien
Chan, an analyst with Oriental Patron Financial Group in Hong
Kong.

‘Nothing Imminent’

“There has been no confirmation from industry regulators
to remove the limit and even if the government is considering
it, we won’t see it happening in at least five years or more,”
Chan said in a telephone interview. “It is nothing imminent
given the complexity of the issue. The government may hold on to
it till local players such as Geely, Great Wall and BYD grow
strong enough to compete with foreign companies head to head.”

The National Development and Reform Commission, the
planning agency that oversees economic policy, said it will
forward the faxed request for a response to Li’s comments to the
relevant departments.

Li was speaking at a briefing about the proposals he
presented yesterday to the Chinese People’s Political
Consultative Conference, the advisory body to China’s
legislature.

The founder of Geely, which last year bought London black-cab maker Manganese Bronze Holdings Plc, proposed that China
should allow free competition in the taxi market, including
removing local protectionism to allow taxi operators to choose
the brands they want regardless of where they are made.

Li also proposed that Chinese should be taxed by household
and that private higher education institutions should be given
the same treatment as those run by the state. Last year, he
proposed that China should regulate the quality of in-cabin air
in passenger vehicles.